A spectacular and world record-breaking firework show extended along the coast of Dubai on New Year’s Eve, filling the sky above Palm Jumeirah and the World islands with light and noise as the pyrotechnic display reached a crescendo.

Four days later, government real estate developer Nakheel, owner of Dubai’s Palm and World islands, announced it would repay loans worth AED4bn ($1.1bn) in 2014 and aimed to be debt-free by 2018. So there was substance behind Dubai’s spectacular welcome to 2014, a year that promises to bring new starts.

A backwater Gulf fishing and pearling village until little more than a century ago, Dubai first emerged as a regional trading centre when Sunni Muslim Arabs from what is now southern Iran settled in the town. In 1901, Dubai’s then ruler Sheikh Maktoum bin Hasher al-Maktoum declared it a free port, abolished tariffs and wooed more traders from the north of the Gulf.

Nakheel’s New Year’s resolution will help dispel final questions about the emirate’s capacity to meet its obligations

The effect was almost immediate. The following year, a ship from India that previously called at Lengeh, on the Persian coast, changed course and headed to Dubai instead. Within a decade, Dubai’s population had doubled to 20,000 people. It was a small but vital step towards where Dubai is now and the emirate has rarely looked back.

In 1958, Sheikh Maktoum’s grandson, Sheikh Rashid, became Dubai’s ruler. The next year, he commissioned the dredging of Dubai creek to reverse the build-up of silt that threatened the shipping business. Soon after, he ordered work to begin on what is now the region’s busiest airport.

Other landmark infrastructure projects came to life after the creation of the UAE, following the withdrawal of the UK from the Gulf in December 1971. Port Rashid began operations in 1972. The road tunnel under the creek was completed in 1975, the same year Dubai Aluminium (Dubal) started. Jebel Ali port opened in 1979 and Dubai Drydocks in 1983. By then, Dubai’s position had been underpinned by its rise as a safe haven during the 1980-88 Iran-Iraq war. It was a new turning point.

Main drivers

The discovery of oil in 1966 raised hopes Dubai would enjoy a boom similar to those already seen in eastern Saudi Arabia, Kuwait, Qatar and Abu Dhabi. Output never rose much above 100,000 barrels a day, however. Non-oil industries, and particularly services, would have to be the backbone of the Dubai economy. Unable to use Jebel Ali in its original configuration (as a base for US and Nato aircraft carriers), Sheikh Rashid approved the idea of an industrial free zone around it. Frustrated by the lack of non-stop, long-distance connections, Dubai created Emirates airline in 1985.

The Expo and the investment expected before it opens will deliver a substantial boost to the economy

Much had been achieved before Sheikh Rashid died at the end of 1990, but Saddam Hussein’s invasion of Kuwait would throw a fresh shadow over the whole region. Pragmatically, Dubai, with the UAE’s support, opened Jebel Ali to coalition naval forces. Consequently, Dubai’s first tourist boom partly took the form of American sailors on shore leave. In 2013, more than 10 million people visited Dubai for leisure or work.

Rapid development

Sheikh Rashid’s eldest son, Sheikh Maktoum, became Dubai’s ruler, and vice-president and prime minister of the UAE, but it quickly became obvious that his younger brother, Sheikh Mohammed, provided much of the emirate’s driving force. Sheikh Mohammed was appointed Dubai’s crown prince in 1995 and a new burst of rapid development began under his leadership. The Burj al-Arab hotel opened in 1999 and was followed by the twin Emirates Towers. The Madinat Jumeirah complex, next to the Burj, opened its doors in 2004. The Jumeirah Group’s properties set a new standard for global hospitality.

The UAE supported the 2003 coalition invasion of Iraq, and Dubai once again provided vital services. With Iraqi production halted, the oil price started its heady decade-long ascent at the end of 2003, just after the IMF/World Bank meetings were held in Dubai. The bank was to be one of its principal beneficiaries.

A new generation of service-based free zones was announced, including the Dubai International Financial Centre (DIFC) in 2004. The focus by then was on real estate development and population growth, fuelled by huge expansions in the capacity of Dubai’s ports and airport. Plans for Dubai city envisaged its population rising to more than 5 million people within a generation. By 2005, Dubai had emerged as one of the world’s most buoyant real estate markets.

The scale of the vision was breathtaking. It entailed reclaiming land from the Gulf along almost all of Dubai’s 60-kilometre coastline, developing a connected system of leisure resorts named Dubailand, cutting a 75km canal from the coast into the interior and then back to the Gulf near Dubai Marina, and building a new international airport south of Jebel Ali big enough to handle up to 160 million passengers and 12 million tonnes of cargo a year. Al-Maktoum International airport’s first phase opened for passengers in November 2013.

With confidence and real estate prices soaring, the financial crisis that broke in the US in mid-2008 initially seemed like distant thunder. But by the end of October, it was clear the Dubai real estate boom was over. Almost overnight, construction stopped across the emirate. The financial consequences were soon obvious. The Dubai government was itself solvent, but government-related entities such as Nakheel had borrowed heavily to pay for their projects. In total, Dubai’s debts amounted to more than $120bn, a figure that was greater than the emirate’s gross domestic product (GDP).

In February 2009, Dubai raised money to meet its financial obligations by selling $10bn of bonds to the Central Bank of the UAE. This provided breathing space only. The debt crisis finally came to a head in the autumn. On 25 November, the Dubai government announced it had raised $5bn from two Abu Dhabi banks and then, at 4pm, said Dubai World, owner of Nakheel, had asked for a repayment standstill. The announcement was interpreted by some that Dubai was about to default. This proved false, but confidence was seriously shaken.

Property crash

The primary victim was the emirate’s real estate market. By the start of 2010, it was estimated that projects worth more than $300bn had been either cancelled or put on hold. The official opening of Burj Khalifa, the world’s tallest inhabited structure, in January 2010 was a solitary highlight in a dispiriting period. It was one of the most demanding chapters in the rule of Sheikh Mohammed, who succeeded his brother in January 2006.

Four years on, the world has changed. Dubai’s debts remain substantial, but Nakheel’s New Year’s resolution will help dispel final questions about the emirate’s capacity to meet its obligations. Dubai, working closely with the government of the UAE, meanwhile, is preparing to roll out details of how it will deliver the promises made to clinch its mandate to host the World Expo 2020.

As this special supplement shows, plans fall into two categories. The first deals with the facilities needed to deliver the event, including the 168-hectare Expo 2020 zone within the Dubai World Central development that encompasses Al-Maktoum International airport. This is where the national pavilions and other attractions will reside.

The E5.2bn ($6.9bn) Expo 2020 investment plan also covers the additional infrastructure to deal with the 25 million visitors it says will come to visit the six-month event. A special-purpose company to manage the construction and operation of the Expo is to be formed, probably in the first half of 2014.

Supporting facilities

The second and larger part of the plan covers the other facilities that will be developed to complement and support the Expo. These include Exhibition City, a zone within Dubai World Central that will be the location of the new permanent exhibition complex, offices, hotels and housing. This will cover a total of 438 hectares, although more than a third of it will be devoted to the Expo zone.

Al-Maktoum airport will be fully operational well before 2020. Further developments at the existing Dubai International airport are also planned. The number of passengers passing through Dubai rose above 65 million in 2013, and 10 per cent growth is expected this year. Based on present trends, the number will be significantly above 100 million by 2020.

The year to come should also witness the start of work on a further expansion at Jebel Ali port, the busiest in the Middle East. Capacity was lifted to 14 million 20-foot equivalent units (TEUs) in 2013 and the completion of Terminal 3 this year will raise capacity to 19 million TEUs. This will set the scene for the port to be expanded to its ultimate capacity of almost 30 million TEUs, although this might not be needed before 2020.

But the largest element will be private investment in housing, offices, hotels and other commercial buildings. Although there is no definite quantification of how much is coming, the number of hotel rooms in Dubai, already the largest in the Middle East, is expected at least to double by 2020. The main investment opportunity in the sector, however, is in high-quality three and four-star hotels to meet the growing demand from tourists.

The need for housing is also expected to rise strongly in the years to 2020. Again, the emphasis will be on affordability rather than luxury, which was the focus for developers and investors in the first Dubai property boom that ended in 2008.

Demand for power and water is likewise expected to rise sharply. Dubai’s electricity generation capacity is now just under 10,000MW. Expressions of interest are due in 2014 for the 1,200MW Hassyan independent power project and the 100MW second phase of Dubai’s solar programme. For the moment, desalination capacity is sufficient, but action to lift water production will be needed by 2020.

Anticipating rising demand, investment is expected to quicken in Dubai’s transport network. A landmark moment will come later this year with the completion of the Al-Sufouh tram system, the first project of its kind in the GCC. Dubai’s Roads & Transport Authority (RTA) is understood to be planning an extension to the metro’s existing Green and Red lines, with the latter expected to be connected to the Expo zone. The RTA has also started preliminary discussions about the possibility of a high-speed mass transport link between Dubai International and Al-Maktoum International airports.

Dubai’s road network will also get attention. Possible projects include the redevelopment of the city centre road network and the double-decking of the critical north-south Sheikh Zayed Road. A key immediate project is the construction of a 16-lane bridge over the creek extension now under construction between Business Bay and the Gulf.

The value of projects that could be needed by 2020 is consequently substantial. According to MEED’s estimates, schemes with a combined value of more than $100bn have been announced in Dubai. New construction contract awards in all sectors could exceed $10bn annually in the years to 2020.

These prospects are reviving regional and international interest in the Dubai and UAE projects markets. The world’s leading engineering firms, most of which already have a presence in the UAE, are preparing to meet growing demand from all sectors of the market.

The Expo 2020 win will also boost Dubai’s finance industry. The emirate’s banks were tested by the 2008 crash, but are liquid, solvent and well-regulated. The Dubai Financial Market was the best-performing in the Middle East in 2012, doubling in value in less than 12 months. There is talk of initial public offerings and bond issues, including through Nasdaq Dubai. The DIFC, meanwhile, will celebrate its 10th anniversary later this year.

Economic impact

All told, the Expo itself and the investment expected before it opens will deliver a substantial boost to Dubai’s economy. According to a report issued in December 2013, hosting the World Expo 2020 will add at least 1.5 percentage points a year to Dubai’s real GDP in 2014-20. There will be additional government and private sector borrowing, but Dubai’s debt-to-GDP ratio should drop significantly. There are worries, however, that a new inflationary asset bubble may be developing and that government attention is required before it gets out of hand.

The new Dubai boom, in whatever form it ultimately takes, will lift the whole of the UAE. The Dubai Expo 2020 bid enjoyed full federal government support. In January, the National Media Council, the federal media industry authority, was due to unveil the details of its plans for the UAE pavilion at the World Expo in Milan in 2015. This, in turn, will set the scene for the Dubai Expo five years later.

The UAE government says that Expo 2020 is for the whole nation, and not just Dubai. There could be no better way to celebrate the start of the UAE’s golden jubilee year.